WASHINGTON (Reuters) - Domestic deals to convert bare lands into forests and keep tree stands healthy could supply 60 percent of available offsets in any U.S. cap-and-trade plan on greenhouse gas emissions, a Barclays Capital analyst said.
The overall supply of domestic offsets could hit 250 million short tons annually by 2020, Trevor Sikorski, a London-based director of carbon markets at Barclays said in a research note.
U.S. forestry and agriculture projects could supply 150 million short tons of those offsets by 2020, the note said.
"Given the political importance of forestry and agriculture in the United States ... (such) offsets will be included in any federal cap-and-trade system," Sikorski said. Trees absorb carbon dioxide as they grow.
In cap-and-trade markets such as the European Union, polluters have the option to invest in offsets, or off-site projects such as small hydropower systems to generate clean electricity or destruction of refrigerant gases that are highly potent greenhouse gases, rather than cut their own emissions.
Senators John Kerry, a Democrat, Lindsey Graham, a Republican, and Joseph Lieberman, an independent, are crafting a compromise climate and energy bill expected to be released on or around April 22, the 40th anniversary of Earth Day.
It is uncertain whether the bill will win 60 votes in the Senate needed for passage amid opposition from lawmakers from states with economies that depend on fossil fuels such as coal, oil and natural gas.
Concerns about forestry offsets that could prevent an investment from storing carbon include forest fires, pests and illegal logging. A buffer stock of credits can be used to cover any loss of carbon stock from individual projects, Sikorski said.
Still, some critics of forestry offsets say they do not represent high quality carbon reductions because the health of a forest is hard to guarantee for the number of years some greenhouse gases remain in the atmosphere.
The senators have not revealed how they would treat offsets in the bill. But offsets could play a smaller role in the new bill than in previous ones because it would only put carbon caps on the utility sector at first. By 2016 emissions from manufacturers would be capped, according to details of the compromise Kerry-Graham-Lieberman bill that have been revealed.
Sikorski said limits to domestic supply of U.S. offsets may require the compromise bill to allow the use of international offsets. The Waxman-Markey bill that passed in the House of Representatives last June would allow 2 billion short tons of offsets a year divided equally between domestic and international ones. Last year's Kerry-Boxer bill would allow 1.5 billion short tons of domestic offsets and 0.5 billion short tons of international ones.
(Reporting by Timothy Gardner; Editing by Lisa Shumaker)
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